FRM 2026 Part I Foundations of Risk Management Credit Risk Free Quiz 2

Practice FRM 2026 Part I Foundations of Risk Management MCQs from Credit Risk. Get instant results with Explanation.

General10 MCQs

1. What is Exposure at Default (EAD)?

A. EAD is the amount outstanding at the time of defaultB. EAD is the probability of defaultC. EAD is the loss given defaultD. EAD is not used in credit risk models

2. What is credit risk mitigation (CRM)?

A. Credit risk mitigation is not effectiveB. Credit risk mitigation includes only collateralC. Credit risk mitigation is the same as risk transferD. Credit risk mitigation includes collateral, guarantees, credit derivatives, and netting

3. What is collateral in credit risk management?

A. Collateral increases credit riskB. Collateral is an asset pledged to secure a loan, reducing credit riskC. Collateral is only for mortgagesD. Collateral is not used in corporate lending

4. What is a credit derivative and what is the most common type?

A. Credit derivatives are the same as equity derivativesB. Credit default swaps are not credit derivativesC. Credit derivatives transfer credit risk, with CDS being the most commonD. Credit derivatives are only used for speculation

5. What is a credit default swap (CDS)?

A. A CDS provides protection against the default of a reference entityB. A CDS is a loan agreementC. A CDS is a type of equity derivativeD. A CDS does not involve periodic payments

General10 MCQs

6. What is credit concentration risk?

A. Credit concentration risk is not a concernB. Credit concentration risk only applies to large banksC. Credit concentration risk is the same as diversificationD. Credit concentration risk is the risk of loss from concentrated exposures

7. What is the formula for Expected Loss (EL)?

A. EL = PD × EADB. EL = PD × LGD × EADC. EL = LGD × EADD. EL = PD × LGD

8. What is unexpected loss (UL)?

A. Unexpected loss is the same as expected lossB. Unexpected loss is the average lossC. Unexpected loss is the potential loss exceeding expected lossD. Unexpected loss is not used in capital adequacy

9. What is Probability of Default (PD)?

A. PD is the probability that a borrower will default within a periodB. PD is the loss given defaultC. PD is the exposure at defaultD. PD is not used in credit risk models

10. How is credit risk measured?

A. Credit risk is measured only by the total loan amountB. Credit risk is not measurableC. Credit risk is measured using market risk modelsD. Credit risk is measured using credit portfolio models and CVaR

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